Interesting Article A Dollar For A Dollar

[ray23]

Completly level playing field. Imagine buying the house that you paid 2 mil baht for now costing two million dollars. That 50 Baht lunch now costing $50.00. What would your weekly foodd budget have to be it would be in the thousands of dollars per week.

Interesting theory but not well thought out, very few Thai's could even rent a home much less but one. Most would not even be able to buy food for their families.

One thing for sure I would definetly transfer Thailand into something no one could possible envision.

"Big Mac Says All About World After Lehman’s Fall: William Pesek

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Commentary by William Pesek

Aug. 10 (Bloomberg) -- The year since Lehman Brothers collapsed has seen one of history’s greatest wealth transfers.

Asia has sent ever-increasing amounts of money to the West, while the U.S. is moving ever-rising mountains of debt to the East. That trade averted the financial Armageddon many feared; that’s good news, and it’s still going on.

To verify the argument, you can spend days weeding through reams of U.S. Treasury data. Or you can just think of the world’s most famous hamburger.

The Economist’s latest “Big Mac Index” shows the extent to which Asian currencies are undervalued against the U.S. dollar. Hong Kong’s dollar is 52 percent undervalued, followed by the Chinese yuan (49 percent), Malaysian ringgit (47 percent), Thai baht (47 percent), Indonesia rupiah (43 percent), Philippine peso (42 percent) and South Korean won (28 percent).

Those figures suggest two things. One, Asian central banks are still buying dollars. Two, the region has yet to overcome a key vulnerability: addiction to the U.S. consumer. The latter point means Asia can’t be complacent about this crisis.

Granted, the Big Mac Index is a lighthearted barometer that some will dismiss. It compares prices for McDonald’s Corp.’s burger globally using the concept of purchasing power parity. The idea is that the dollar should buy the same amount in all countries and that, over time, exchange rates should move toward a level that equalizes the price of an identical basket of goods and services.

Asia’s Case

The measure has its flaws. Local inputs -- such as wages and rent -- say much about what a Big Mac costs in Stockholm or Jakarta. In Asia’s case, though, the index is indeed providing insights as we assess the wreckage following the September 2008 demise of Lehman Brothers Holdings Inc.

Who back then would have foreseen what’s since become of the global financial system? Trillions of dollars of public bailouts, the U.S. breaking all of the economic commandments it imposed on Asia a decade ago, Singapore bailing out Wall Street giants, China and Russia eyeing a replacement for the dollar, you name it.

A key side effect of Lehman’s implosion was accelerating a dynamic that began during the 1997 Asian crisis. Back then, Asia began shipping household savings to the U.S. to help exporters. Unprecedented market turmoil and a deep global recession last year gave Asian governments even more reason to hold down currencies, says Simon Grose-Hodge, strategist at LGT Group in Singapore. That meant buying even more dollars.

Weakness and Strength

Timothy Geithner is no doubt fine with that. The U.S. Treasury secretary is spending more and more time placating fears about the dollar in Asia. Yet concerns that Asian policy makers would pull the plug on U.S. debt haven’t been realized. The reason says more about Asia’s weaknesses than its strengths.

Many believe Asia’s vast savings give it considerable leverage over the biggest economy. In reality, Asia’s Treasuries fetish is more about weakness than strength. Asia has gotten itself into an arrangement from which it can’t escape. If it dumps its Treasuries, it loses billions of state money and wrecks any chance of a U.S. recovery.

Political will is lacking to retool economies away from exports toward domestic demand. China, for example, is throwing nearly $600 billion at its economy and the result is an astonishing 7.9 growth rate. It’s doing little to boost domestic demand, though. The unbalanced nature of China’s pump priming may be setting the stage for a Japan-like bad-loan crisis.

Japan’s Plight

Japan’s plight isn’t much brighter. The hundreds of billions of dollars it’s spending offer merely a short-term fix. The money won’t get Japan any closer to dealing with a steady loss of competitiveness amid the rise of China and India or an aging population. It will only increase an already daunting debt load for Asia’s biggest economy.

And so, policy makers are sticking to a formula that’s worked wonders for over a decade: Holding down exchange rates. That’s good for the U.S. at the moment. Washington needs Asia’s money to finance its historic borrowing spurt. That’s why Asia’s dollar-buying has a powerful inertia to it. The question, of course, is whether the phenomenon can continue indefinitely.

Korea’s recent experience -- managing in the second quarter to expand at the fastest pace in almost six years -- shows the importance of weak currencies. Samsung Electronics Co. recently joined exporters Hyundai Motor Co. and LG Electronics Inc. in reporting surging profits last quarter.

Underappreciated Risk

An underappreciated risk here is the dollar crash on which hedge-fund managers have been betting for years. Such an eventuality would boost exchange rates and act as a formidable headwind in Asia.

That may seem a more immediate problem for Europe. The latest Big Mac Index shows the Norwegian krone to be 72 percent overvalued, followed by the Swiss franc (68 percent), Danish krone (55 percent) and Swedish krona (38 percent).

Exchange rates in Asia, meanwhile, are in many cases below pre-Lehman-collapse levels. It’s a short-term positive and a long-term negative for the fastest-growing region. The proof is everywhere -- even in the burgers.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: William Pesek in Tokyo at [email protected]"

[jerrylee]

Sorry, sounds like spin doctors reading tea leaves to me ...

[ray23]

Ya that sounds about right. I don't know what he is smoking but he needs to share

[Naam]

perhaps the stuff is injected? but definitely illegal!

[ray23]

:D :D :D

[Time Traveller]

As ridiculous as the big mac index is, this article does highlight an important point that effects citizens of these Asian countries. Namely that self interested political pressure to weaken exchange rates so as to help exporters is just a short-term positive and a long-term negative - trading off long term prosperity for short term jobs that will just flow to the country with the lowest labour cost. Asian governments (and especially their citizens) need to ask do they always want to be a low wage country? People insisting on weaker currency (for their own self interest) are if fact jeopordising longer term national prosperity.

[teletiger]

The other side to that coin is that a $2 million mansion in the Hamptons will cost 2 million Baht. Somchai, his 6 kids and 10 dogs will soon bring that price down.

Regards.